Always Pay in Grace Period

[twigster]

How about current but previously late notes that have:
* a long payment history, 7+ payments
* almost always pay in grace period
* recent credit score is even or up

 Basically wondering if those buying folio notes have found that previous grace payment is a good indicator of future default or not. 

 

[yojoakak]

I'm not even sure how it can happen (but it does)

"Topic: If loans are auto-payed how do some loans pay in the Grace Period every month? "
http://www.lendacademy.com/forum/index.php?topic=1177.0

[Bohb Daishi]

How about current but previously late notes that have:
* a long payment history, 7+ payments
* almost always pay in grace period
* recent credit score is even or up

 Basically wondering if those buying folio notes have found that previous grace payment is a good indicator of future default or not.

There is a trading strategy here, but there are several issues with it:

• The margins are very slim. If one note goes bad, it'll take 4+ good trades just to break even.
• IGP notes are highly competitive. Many traders only focus on this area.
• If the note goes current, you have a very short window to sell it before it goes IGP again.
• If the note goes current, you will be forced to sell it at >10% discount (that is, unless you are ok with holding onto it for a few months).

[twigster]

There is a trading strategy here, but there are several issues with it:

Yes, I am not keen on buying IGP notes, because they seem to normally move quickly on to late 16 - 30, if I was sub par notes would go for the late 16 - 30.  My question was more along the lines of buying Late Now Current notes, that normally pay in grace period and have a long history of it.   Or those that have just one or two payments in GP.  If the lendee always seems to pay but is a bit flakey with the dates and gets dinged with Grace period payments how much of a discount is fair value for such a note, given that the credit score is even or up?   

"Topic: If loans are auto-payed how do some loans pay in the Grace Period every month? "
http://www.lendacademy.com/forum/index.php?topic=1177.0

Very good, thanks for the link.  Some interesting commentary on those notes that always pay in Grace Period.

[Bohb Daishi]

There is a trading strategy here, but there are several issues with it:

Yes, I am not keen on buying IGP notes, because they seem to normally move quickly on to late 16 - 30, if I was sub par notes would go for the late 16 - 30.  My question was more along the lines of buying Late Now Current notes, that normally pay in grace period and have a long history of it.   Or those that have just one or two payments in GP.  If the lendee always seems to pay but is a bit flakey with the dates and gets dinged with Grace period payments how much of a discount is fair value for such a note, given that the credit score is even or up?

If you are looking to make investment purchases, then this strategy is much better. Focus on current notes at a >7% discount and you should make a good return.

[twigster]

If you are looking to make investment purchases, then this strategy is much better. Focus on current notes at a >7% discount and you should make a good return.

Thanks for the tip.  I have been looking at current notes, never late with long payment history that sell at 0% discount to some small discount.  If you allow for previously late notes the discounts go up quite a bit.  So you think it is better to look at notes that have some lates with 7% or more discount vs no previous lates?   

[Bohb Daishi]

If you are looking to make investment purchases, then this strategy is much better. Focus on current notes at a >7% discount and you should make a good return.

Thanks for the tip.  I have been looking at current notes, never late with long payment history that sell at 0% discount to some small discount.  If you allow for previously late notes the discounts go up quite a bit.  So you think it is better to look at notes that have some lates with 7% or more discount vs no previous lates?

In general, I do believe it's better to purchase these notes when you can get them at a good discount. Keep in mind, most people probably don't even know these notes exist because the filters default to "never late". As a result, the discounts are pushed much higher than they should be.

[twigster]

it's better to purchase these notes when you can get them at a good discount.

I have bought a couple of previously late notes before just to see how they do.  There are a number of factors obviously affecting the price.

Here is an example note I just pulled up now which I realize I do not really know how to evaluate.  It has several negatives.  Drop in credit score by 100 points or so, several grace period payments, a late payment, a partial payment and now the loan is current.  It is the largest discounted note for lates now current that my search pulled up, discount = 22.15%.  At this discount level is this not a good buy?  How much discount would you say it takes to make up for 100 point drop in credit score on a long paying previously late now current note?

https://www.lendingclub.com/foliofn/browseNotesLoanPerf.action?showfoliofn=true&loan_id=4568869&order_id=22450214&note_id=24130956

[core]

It is the largest discounted note for lates now current that my search pulled up, discount = 22.15%.  At this discount level is this not a good buy?

Yes that's a very good buy.  Any cheaper and you'd be stealing it.  I'd snatch that puppy up now.

It just so happens that it's my note and I have to have it sold by tomorrow night, but that didn't bias my answer of course.

P.S.  The fico went up +15 this month.  The 100 pt drop was several months ago.  Borrower promises to be a good boy.

[twigster]

I'd snatch that puppy up now.

Core thanks for your insight, I'm sure it is not biased the least bit by the fact that it is your note!  

Actually not currently buying any notes at month end, but just trying to get a handle on how to view different events which have happened that affect notes value on the secondary market (for buy and hold).  Not an easy endeavor I might add!